Final report of investigation, Case ...

              Arizona Ombudsman-Citizens' Aide
Final Report of Investigation
Case # 20062692
Registrar of Contractors
December 12, 2008
Arizona Ombudsman/Citizens' Aide
3737 N. 7th Street, Suite 209
Phoenix, Arizona 85014
(602) 277-7292 (800) 872-2879
December 12, 2008
Hon. Bob Burns
Senate President Designee
1700 W. Washington, Rm. 204
Phoenix, AZ 85007
Dear Senator Burns:
Enclosed is a copy of the report of our investigation of case number 20062692, regarding the
Registrar of Contractors (ROC).
Nine homeowners contacted us to complain about the ROC system as it related to their
Recovery Fund cases against a licensed contractor. The complainants alleged the Registrar
of Contractors processed the complicated Recovery Fund complaints in an untimely manner.
We substantiated the allegation and made 63 findings.
Our investigation indicates that process has overwhelmed purpose at the Registrar's Office.
The ROC system harms both homeowners and contractors. The State can and should do a
better job by homeowners while still protecting contractors with fair and proper due process
systems. Our 68 recommendations would help accomplish that goal.
Thirty-six of the recommendations require legislative action. We request the Legislature
consider addressing the problems we identify in the enclosed report.
I hope you find this report useful. If you have any questions or comments, please do not
hesitate to call me at 602-285-9136 Ext 26. I would welcome the opportunity to sit down
with you to discuss the report in more detail.
Sincerely,
Enclosure
TABLE OF CONTENTS
Executive Summary
Report - 17 Issues:
Allegation, Introduction and Background
Issue 1: Does the Recovery Fund system take too long?
Issue 2: Recovery Fund Requirements - - Are the Fund's
limits set too low or are other Fund requirements
too onerous?
Issue 3: Is the Registrar's overall process reasonable or
is it too complicated?
Issue 4: Are there appropriate triggers for the summary
suspension of a contractor's license (as
referenced in A. R. S. §41-1 092.11)?
Issue 5: Can problem contractors "game the system"
and avoid discipline?
Issue 6: Are surety bond amounts set appropriately?
Issue 7: Are monetary penalties appropriately applied
against contractors found to be in violation of statutes?
Issue 8: The difficult two-pronged legal and factual question:
(A) When can a homeowner employ a new
contractor to fix a problem?
(B) When can a homeowner deny access to
the original contactor?
Issue 9: Contractors frequently operate as a limited
liability company (LLC). What omissions in
A. R. S., Title 32, relate to contractors operating
as limited liability company entities?
Issue 10: What is the enforcement process the Registrar of
Contractor follows to ensure compliance with
A.R.S. §§32-1122(B)(1)(i) and 32-1154 (A)(4)
relating to workman compensation laws?
Issue 11: What is the enforcement process the Registrar of
Contractors follows to ensure compliance with
A. R. S. §32-1154 (A)(4) governing unemployment
insurance laws?
Issue 12: What is the enforcement process the Registrar of
Contractors follows to ensure compliance with
A. R. S. §32-1154 (A)(4) governing social security?
Issue 13: What is the enforcement process the Registrar of
Contractors follows to ensure compliance with
A.R.S. §32-1154 (A)(5) governing income taxes
or any tax imposed by title 42, chapter 5, articles 1
and 4 and incurred in the operation of the licensed business.
Issue 14: To what extent does the Registrar of Contractor's
Office check contractor backgrounds?
I -XXI
page 1
page 6
page 14
page 23
page 32
page 37
page 42
page 48
page 53
page 60
page 63
page 66
page 68
page 69
page 71
Issue 15: What is the scope ofdiscipline affecting a contractor's
remaining licenses once he has one license suspended
or revoked?
Issue 16: To what degree are general contractors required to
verify whether a sub-contractor has a license in good
standing with the Registrar ofContractors?
Issue 17: Is it proper for the Registrar to encourage complainants
to pursue cases on their own without the benefit oflegal
counsel?
Conclusions
Agency Response
page 75
page 78
page 79
page 82
LIST OF ATTACHMENTS:
Exhibit A--
-Timetable A - Administrative Process to the Recovery Fund
-Administrative Process Described
Exhibit B --
-Timetable B - Civil Court Process to the Recovery Fund
-Civil Court Process to the Recovery Fund Described
Exhibit C -- Flow Chart of Process (without complications)
Exhibit D -- Legal memo relating to summary suspension
Exhibit E -- 2003 Auditor General Report Recommendation
Exhibit F -- Bond Limits and Regulations
Exhibit G -- List of the 31 States with Licensing Boards for Contractors
Exhibit H -- Residential Contracting by State
Exhibit I -- NASCLA states Recovery Fund Features Summary and Overview
Exhibit J -- Complaint Forms, Instructions & Brochures
Exhibit K -- ROC Recovery Fund Forms and Instructions
Exhibit L -- Office of Administrative Hearings Information
Exhibit M -- Press Clippings about Similar ROC Cases
Exhibit N-­Exhibit
O-~
Exhibit P -­Exhibit
Q-­Exhibit
R-­Exhibit
S -­Exhibit
T--
ROC web site information regarding subject contractor
ROC Contractor Brochure
ROC Customer Survey
Charts and Grids
Office ofAdministrative Hearing Survey about Legal Representation
Summary ofRecommendations
References
ii
Executive Summary
Ombudsman - Citizen's Aide
Investigation of the
Registrar of Contractors
Executive Summary
Ombudsman - Citizen's Aide
Investigation ofthe Registrar of Contractors
"The agency's mission is to promote quality construction by Arizona contractors
through a licensing and regulatory system designed to protect the health, safety and
welfare ofthe public. "
Registrar ofContractors
The Registrar's Office received grievances filed against a dual-licensed contractor who was accused
by 25 families of wrongdoing. Nine of these families subsequently complained about the Registrar of
Contractor's process to the State Ombudsman Office. The owners complained the Registrar's Office
was too passive and not living up to its stated mission. The Office of the Ombudsman Citizen - Aide
then conducted an investigation of the Registrar of Contractors pursuant to A.R.S. §41-1376 et seq.
Essentially, we examined how well the Registrar was delivering on its mission promise.
Some of the complainant homeowners initially filed with the Registrar's Office, others with the
Superior Court and some filed at both locations. Each owner desired financial recovery via the
Residential Recovery Fund. Access to the Recovery Fund is dictated by statutory constraints and
controlled by the Registrar's Office. Homeowners in both the administrative and the civil court
processes felt the Registrar of Contractors Office seemed indifferent about the length of time and
difficulty of their process. Owners and contractors both complain to the Ombudsman Office that the
Registrar's Office process takes too long.
The contractor in this case had 25 complaints filed against him stemming from contracts dating from
2005 and 2006. After about two years, these complaint cases had gone through most of the system
and were closed. Twenty-three of the complaints resulted in discipline while two complaints settled
or withdrew. Nine homeowners recovered money from the Recovery Fund to compensate or partially
compensate them for their loss. Yet, seven deserving homeowners, with a total of $96,515 in
unrecoverable awards, went away empty-handed despite proving the contractor's guilt because the
Recovery Fund limit of $200,000 was reached.
Consistently the vast majorities of contractors' licenses (slightly over 90%) are highly regarded and
are not involved in the complaint process. These licensees pride themselves on quality workmanship
and good customer service. Regrettably, there are a still a significant number of contractors who
receive a complaint. The Registrar of Contractors received 11,867 complaints in FY07 against 5,679
different licensees. In FY06, 11,974 complaints were received. About one-third of the complaints
coming into the ROC are serious complaints requiring adjudication. Most of these serious
complainants seek reparation from the Recovery Fund. The remaining two-thirds of the complaints
are addressed relatively quickly because they are less complex. Typically, less complex complaints
are fixed or resolved prior to hearings, not substantiated by the ROC, or the homeowner declines to
continue.
We focused our attention on the more involved complaints where complainants must avail themselves
of the Registrar's full process in order to obtain Recovery Fund reparation. We looked at the
Registrar's systems and identified 17 issues. The 68 reforms we are recommending intend to help
both homeowners and contractors by reducing the untimely nature of the Registrar's complaint
system and by clarifying vague areas of contractor regulation and homeowner responsibility. The
recommended reforms also focus the attention and discipline of the Registrar's Office on the worst
transgressors amongst contractors because these problem contractors give good contractors a bad
name and because they are most likely to harm the public in a substantial way. Lastly, some reforms
concentrate on inconsistently pursued aspects ofthe Registrar's regulatory mission.
ISSUE 1-
DOES THE RECOVERY FUND SYSTEM TAKE TOO LONG?
See pages 6-14.
The process from complaint to Recovery"Fund-payment-day usually takes well over a year. This is
too long. There are two paths to the Recovery Fund. One is through the ROC and the Office of
Administrative Hearings and is called the Administrative Process. The other process goes through
both the Civil Court and the ROC Recovery Fund. We found:
• There are 65 typical components in the Administrative Process. This translates numerically
into a 43-step process, which can take 545 days even if no judicial reviews or other appeals
are required. The most time-consuming aspect of the system is the hearing process.
Administrative cases usually require two hearings. One hearing determines responsibility
while the other determines the actual Recovery Fund amount.
• There are 33 components in the Civil Court Process leading to the Recovery Fund. This
translates numerically into a 29-step process generally involving approximately 123 days of
interaction with the Registrar of Contractors Office, after the case is won in court. Just
starting the post-court segment of the process is complicated. Prevailing homeowners must
bring their original judgment to the ROC from the Court. Homeowners must then file a
twenty-day notice with the ROC to say they are going back to court to ask for damage and
payment orders from the judge. Again, with this system, each of the parties and the
Registrar's Office must labor through two hearings.
• The ROC complaint process tends to take between one and two years until final penalties are
ordered, so bad contractors can continue to accumulate contracts while under inves.tigation.
The slow processes for contested cases exacerbates costs and frustrations and results in a
system that serves neither homeowners or contractors. Frequently, nine to twelve months pass
before an errant contractor starts to experience actual discipline. Additionally, it means a bad
contractor can cause significant financial damage to numerous homeowners prior to having his
license suspended. For innocent contractors, it means they cannot clear themselves from
being negatively categorized in the ROC web database as having an "open complaint."
• Delays stem from many sources - -
a) a two-hearing process instead of a one-hearing process.
b) scheduling property inspections
c) the Registrar's outdated computer system
d) the busy hearing calendar at the Office of Administrative Hearings
e) too many cases (about 3,500 +) being worked by too few people in the ROC Legal
Department
f) the Registrar's Office has no formal process to expedite payment out of the Recovery
Fund, even if a Court has already established guilt.
II
• The Registrar's Office has no performance measure to track their complaint system's duration
from beginning to end. Such a measure would be critical to assessing problem areas and
reducing processing time.
• The ROC's Corrective Work Order and the Citation are largely redundant to one another and
having both notices lengthens the process.
The Registrar's Office should
~ Revisit their strategic planning process. The ROC should develop a performance measure to
track their complaint system's duration from beginning to end in both the administrative
system and the court system. Under the current process, the administrative system typically
takes 545 days or more and the court system route takes 123 days or more of interaction with
the Registrar of Contractors, after the case is won in court. (Recommendation IE)
~ Request the Legislature approve enough staff for their agency so property inspections can
occur within three weeks for regular cases and within two days when there are habitation or
extreme hazard issues. In the current process, inspections typically do not occur until eight
weeks after a complaint is filed and then it takes an additional twenty days or more for
inspectors to write and distribute their reports. (Recommendation 1F)
The Office of Administrative Hearings (OAH) should
~ Request more administrative law judge positions from the Legislature. They should strive to
reduce the waiting times for hearing appointments relating to ROC cases to six weeks or less.
It currently takes approximately three months to get into a hearing. (Recommendation 1G)
The Legislature should consider:
~ Changing the Registrar ofContractors process by establishing a diverse group of stakeholders
to analyze the process and recommend changes. The Registrar's administrative processes for
complaints need to be reduced. The current process takes too long and frustrates homeowners,
contractors and even the Registrar's staff. Toward this end, the legislature should consider
establishing a study group comprised of complainant homeowners, plaintiff attorneys and
consumer advocates along with contractors, respondent attorneys and construction industry
representatives to examine the administrative system and suggest further refinements. The
Registrar's Office should participate in the evaluation too. (Recommendation lA)
~ Amending statutes so construction cases contested administratively via the Registrar of
Contractors and the Office of Administrative Hearings have the Recovery Fund claim
stipulated in the original case determination and order. This would eliminate the current,
time-consuming exercise requiring two proceedings. Under such a scenario, complainants
would request a specific Recovery Fund amount when they file their complaint.
Subsequently, if ROC inspectors verified the complaint, the inspectors would issue corrective
work orders stipulating not only what needs to be fixed/accomplished, but also their
evaluation of the claim amount. Contractors would still have their due process rights because
they could challenge the claim in the main hearing as to both responsibility and amount.
(Recommendation IB)
~ Amending construction statutes so cases contested in court have the Recovery Fund claim
amount stipulated in the original case determination and order. This would eliminate the
current time-consuming exercise where homeowners initially win in court, announce the fact
to the ROC, wait twenty or more days and then return to court to ask the judge to direct the
ROC to make a Recovery Fund payment. (Recommendation 1C)
III
»- The Registrar's process for Recovery Fund complaints originating in the courts need to be
reduced. The current system takes too long. Toward this end, the legislature should consider
establishing a study group comprised of complainant homeowners, plaintiff attorneys and
consumer advocates along with contractors, respondent attorneys and construction industry
representatives to examine the ROC process for judicial complaints and suggest ways to speed
up the process. The Registrar's Office should participate in the evaluation too.
(Recommendation ID)
»- Amending statutes to streamline the Inspection to Citation process. The inspection notice
could set an inspection date, inform the contractor about the complaint (via a copy of the
actual complaint) and suggest the contractor attempt to work out the problems prior to the
inspection. It could give the contractor notice that if the inspector verifies workmanship or
other problems at the future inspection, then an official citation will be issued. The current
process usually has three written notices at its front end - a Notice of Inspection, a Corrective
Work Order and then a Citation. It would be more efficient if this three-step notice process
were reduced to two. (Recommendation 1H)
»- Adopting a statute, similar to Minnesota's Statute §326-975, to accelerate payment out of the
contractor's recovery fund under certain circumstances. (Recommendation II)
»- Instructing the Office of Management and Budget to closely track and report the progress of
the Registrar of Contractor Information Management System (ROCIMS) computer project to
ensure it stays on course and has the necessary resources to be successfully completed.
(Recommendation IJ)
ISSUE 2-
RECOVERY FUND REQUIREMENTS - - ARE THE FUND'S LIMITS SET TOO LOW OR
ARE OTHER FUND REQUIREMENTS TOO ONEROUS?
See pages 14 - 23.
The Recovery Fund's reparation limits are set too low and getting through the claim process is too
onerous.
• The Fund's $30,000 individual and $200,000 total monetary limits are too low. They were
last increased in 2002. Because of the limit caps, some wronged consumers are likely to go
away empty-handed or only partially compensated for their losses. Homeowners may only
recover a maximum of $30,000 per residence, even though they might loose much more.
Once the Registrar disperses $200,000 against a particular contractor, the fund is closed and
the Registrar cannot pay more claims against that contractor's license. Homeowners might
prove the contractor guilty, yet receive nothing from the Recovery Fund because they happen
to be a homeowner who is in line after the fund is closed. Alternatively, homeowners might
face actual losses from a contractor's bad acts far exceeding the Recovery Fund's $30,000
individual limit, but have no effective means to collect the monies.
• Most complaints require lengthy due process procedures before contractors face discipline.
Faster processes like summary suspension and administrative suspensions exist,.but they have
many restrictions and thus, are limited in use.
• Only actual damages are recoverable. The Fund will not pay back homeowners who expend
money on legal fees, expert witnesses or other such costs.
• It is too complicated to establish the recovery fund request. The Registrar's Office only gives
generalized guidance in developing a homeowner's justification for their recovery fund
request. They do not have specific estimating benchmarks for homeowners to go by.
IV
Homeowners are entirely responsible for cost estimates for work, supplies or equipment. The
Registrar staffhas essentially "veto authority."
• Estimates are frequently very difficult for homeowners to obtain because other contractors
(replacements) tend to shy away from homeowners who have filed with the ROC.
• There is no way for a homeowner to get pre-approval for cost estimates. Either homeowners
wait for the entire ROC process to finish (typically over a year) or they get estimates, proceed
with repairs and hope they will not be second-guessed and rejected.
• There is almost no way for homeowners to be compensated for their own sweat equity or for
the work of a handyman.
• We found other states found creative ways to avoid over extending their recovery funds.
They will consolidate claims, limit distributions to proportional amounts per year or allow
carryover reparations.
The Registrar should:
~ Develop ways to estimate reasonable construction costs in instances where homeowners
cannot. The Registrar's Office could issue a preliminary estimate of the value of labor,
equipment, supplies and material that would serve as a suggested floor amount for the
recovery fund amount. Homeowners could accept this floor amount or get specific estimates.
(Recommendation 2C)
". Develop criteria to define and pre-approve some situations when it is reasonable to accept
estimates for homeowner "sweat-equity." (Recommendation 2D)
". Examine how other states manage multiple claims against one contractor and develop a like
proposal for the Arizona Legislature to consider. (Recommendation 2F)
The Legislature should consider:
~ Amending construction statutes to increase individual Recovery Fund claim limits from
$30,000 to $50,000. (Recommendation 2A)
". Amending construction statutes to increase the total claim limit against a contractor from
$200,000 to $500,000. These changes would compensate or partially compensate more
homeowners than allowed under the existing limits. (Recommendation 2B)
~ Removing the $1000 limit found in A.R.S. §32-1121 so that the total cost of the contract is not
a factor when using a handyman, just the handyman's total labor charges as a portion of the
project charge. (Recommendation 2E)
ISSUE 3-
IS THE REGISTRAR'S OVERALL PROCESS REASONABLE OR IS IT TOO
COMPLICATED?
See pages 23-32.
The Registrar's process is confusing and too complicated.
• The current system is dependent on homeowners' continued pressure on the Registrar to bring
errant contractors into compliance with statutes and rules regulating contractors. If a
homeowner does not keep pushing for justice, the Registrar will frequently close a case. This
is true even if the Registrar's Office confirms the contractor failed to adhere to contracting
laws or workmanship standards.
• The ROC approach is too segmented. The ROC employees only seem to know about their
section. Yet the contractors and homeowners seek a bottom-line "big-picture view" so they
v
can understand what to expect and what is required. Both homeowners and contractors
complain to the Ombudsman Office they are frustrated by piecemeal or contradictory
communications from the Registrar's Office. Homeowners and contractors see the complaint
process from the standpoint of how long they are mired in the total process, while the ROC
staff members speak in terms of how long the case has been in their particular segment (e.g.,
inspection, citation, legal hearing, order, recovery fund justification, recovery fund hearing,
and warrant payoff).
• The ROC rarely becomes a party to a case.
• The Registrar's Office fails to consistently pursue many aspects ofits regulatory mission. For
example, the Registrar might have verified evidence a contractor violated construction laws
and harmed a family, yet the ROC will close the case just because the homeowner tires of the
fight. We also found the Registrar's Office inconsistently issues fines even in cases where
contractors have been suspended or revoked under provisions making financial penalties
applicable under law. Additionally, we found the Registrar's Office would receive
information a contractor failed to make required workers compensation payments, tax
payments and unemployment insurance payments, yet not act on the information..
• Specific to, this case, the contractor in question was accused of not paying workers
compensation as required under contracting licensing laws. After the Registrar's Office failed
to refer the matter or otherwise investigate, homeowners contacted a State Senator and she
asked the Industrial Commission to investigate. The Industrial Commission confirmed the
contractor violated the law and issued a $1,000 fine. The Registrar's Office database on the
web makes no mention of the violation or the fine. In fact, we could not find any mention of
similar infractions by any licensed contractor.
• Consumers and contractors say they find the process confusing. They want more cohesive
and comprehensive instructions and they want the ROC to flow chart the process so they have
a better understanding oftheir deadlines and options.
• We informed the Registrar their web site contained some obsolete matrixes, FAQ points,
descriptive passages and other misleading information. The Registrar's Office made many
corrections and improvements to their web site in the past year. However, the Registrar's
contractor database still needs refinement. The database does not disclose the date it was last
updated and only displays partial information about contractors' complaints and discipline.
• Imaging ofdocuments takes too long.
• Case timeframes are not posted on the Internet or elsewhere in public view. As a result, the
parties to a case often are not sure what more is required of them, if the ROC has received
documents or if a delay is avoidable.
• The Registrar's Office fails to supervise or actively monitor settlements between homeowners
and contractors stemming from complaints. The ROC closes cases and marks them on the
web as "settled" when it is not clear whether the parties will abide by the terms of the
agreement. This implies a firmer resolution than what actually exists.
• Lastly, we reviewed the survey form and found its design fails to elicit enough feedback for
the organization.
The Registrar's Office should:
~ Augment their written instructions to make them more complete so consumers and contractors
are less confused about their processes. They should flow-chart the process and show each of
VI
the parties what options are available to them at each possible stage. They should create a
consumer handbook and a recovery fund guide. (Recommendation 3C)
» The Registrar's Office deserves kudos for recently implemented web site improvements. The
site is much more informative and user friendly than what was available a year ago. The
Registrar should continue to improve their main web site. The Registrar's web site should
display the status of complaints or link to the Office of Administrative Hearings case
information. Registrar staff should have quick research options allowing them to point
consumers to online, timesaving data and features. (Recommendation 3D)
» Put more information into their licensed contractor database and web display. They should
note the date the infonnation was last updated (Recommendation 3E)
» Consult with Arizona's Government Information Technology Agency (GITA) and develop a
project to expand their imaging process so that it is faster and more all encompassing. The
current imaging process takes too long, keeps files unavailable and is not comprehensive
enough. (Recommendation 3F)
» Post case status and timeframes on their web site. (Recommendation 3G)
» Monitor settlements of contested cases between homeowners and contractors. They should
automatically re-open tabled complaints once they get notice either party defaulted on the
deal. (Recommendation 3H)
);- Develop another tenn or phrase to describe situations where settlement agreements are in play.
They should not display the word "settled" until the matter is fully closed and the parties live
up to the tenns ofthe settlement. (Recommendation 31)
);- Improve their survey. The survey should identify whether or not the respondent is a
contractor or homeowner, whether or not the case went to the recovery fund stage and how
long the complaint took to resolve (date complaint was opened to date case was closed).
(Recommendation 3J)
The Legislature should consider:
);- Adding 3 to 4 case contact staff to the ROC's organization so that each case has a single point
of contact for all parties. (Recommendation 3A)
);- Amending statutes to make the Registrar a party to the case if the State has a clear interest.
(Recommendation 3B)
ISSUE 4-
ARE THERE APPROPRIATE TRIGGERS FOR THE SUMMARY SUSPENSION OF A
CONTRACTOR'S LICENSE (AS REFERENCED IN ARIZONA REVISED STATUTES §41­l092.11)?
See pages 32- 37.
We found the Registrar's Office historically avoided invoking the provision that summarily suspends
a contractor's license, but a new law is likely to make it easier to issue summary suspensions.
• Historically, provisions in Title 41 have guided the Registrar's Office. A.R.S. § 41­1092.11
(B) says, "Revocation, suspension, annulment or withdrawal of any license is not
lawful unless, before the action, the agency provides the licensee with notice and an
opportunity for a hearing in accordance with this article. If the agency finds that the public
health, safety or welfare imperatively requires emergency action, and incorporates a finding
to that effect in its order, the agency may order summary suspension of a license pending
VII
proceedings for revocation or other action. These proceedings shall be promptly instituted
and determined."
• Criteria in statute, rule or policy as to what constitutes grounds for Summary Suspension
resulting from concern for "public health, safety or welfare imperatively requiring emergency
action" as referenced in A. R. S. § 41-1092.11(B) are not defined, so the Registrar was
reluctant to use it. However, the 48th Legislature, Regular Session passed and the Governor
approved Senate Bill 1417. It refines Arizona Revised Statutes Title 32 relating to
contractors. A.R.S. §§32-1171(A) and 32-1171(C), "General Remodeling and Repair
Contractors" establishes two criteria where the Registrar may issue a summary suspension -­one
in the case of a contractor failing to obtain workers' compensation pursuant to Title 23,
Chapter 6, Article 4 and the other when the Registrar believes an investigation indicates the
public health and safety requires immediate action.
• Senate Bill 1417 also addresses abandonment complaints. Contractors who are the subject of
five or more substantiated complaints lose their right to take on more work until they get
below five complaints in a year's time.
• SB 1417 did not establish an expedited investigatory or repair process in cases where there are
threats to public health and safety. For a summary suspension provision to be effective, fast
intervention is needed at both points.
• There is no process to expeditiously determine whether a situation rises to the level where the
Registrar can confirm a threat ofdanger to public health and safety requires immediate action.
• The Auditor General recommended the Registrar's Office define summary suspension rule
criteria in 2003, and the Registrar's Office agreed, but the Registrar's Office has not
developed the definition to date.
The Legislature should consider:
>- Creating statutory criteria to specify situations where the Registrar's office is required to
perform expedited inspections (within two working days) when a homeowner credibly alleges
a public health, safety or welfare concern exists as the result of faulty acts committed by their
contractor. (Recommendation 4A)
>- Stipulating that, that in circumstances where the Registrar's Order confirms a public hazard or
active safety issue directly attributable to an error by the contractor, the contractor should be
required to fix the hazard within a 24-hour period or some other brief time or deliver specific
evidence to counter that it is his responsibility. The hazard should be grave enough to
potentially cause death, serious bodily harm or prevent habitation. Failure to comply with both
of these provisions should result in a default finding releasing the homeowner from his
obligation to continue to work with the initial contractor. However, it should not release the
contractor from existing damage claims. (Recommendation 4B)
ISSUE s-
CAN PROBLEM CONTRACTORS "GAME THE SYSTEM" AND AVOID DISCIPLINE?
See pages 37~ 42.
We found that bad contractors can exploit the ROC system.
• The contractor in these cases illustrates the point. He had 25 complaints filed against him in
the past two and half years. As of April 16, 2008, the ROC reported these cases were finally
closed. Eight families received payments from the Recovery Fund. The ninth and final
VIII
family was assigned only get a partial Recovery Fund payment of $24,359.66 because the
Recovery Fund limits total payouts on anyone contractor to the sum of $200,000. Despite
proving the contractor's guilt, seven deserving homeowners, with a total of $96,515 in
unrecoverable awards, went away empty-handed because the Recovery Fund limit was
reached.
• It has been almost impossible to suspend a contractor in less than nine month's time unless the
contractor had an administrative problem (e.g., Loses his bond or loses his corporate status
because the Corporation Commission dissolved him). This is even true when there are
multiple complaints against a contractor. A bad contractor can do a lot of harm in 9 months.
While it remains to be seen in practice, the new changes to A.R.S. §32-1171 will likely reduce
the time in situations where contractors fail to maintain their workers compensation payments
or create a situation where public health and safety are at risk.
• Contractors, unlike realtors, do not have standardized contracts. Bad contractors fail to
specify timeframes, materials and payment schedules among other things. The absence of
such requirements enables badly behaved contractors to exploit unwary homeowners.
• Contractors can stall the process by many means.
• Complaints closed after a corrective work order, but before an administrative hearing, largely
allow errant contractors to thwart the discipline process.
• Complaints closed before an inspection and issuance of a corrective work order, thwart the
discipline process even more. The ROC web does not display or count such cases.
• Problem contractors, who consistently fail to adhere to rules or statutes, skirt the penalty phase
by fixing problems shortly before or soon after the Registrar's Office issues corrective work
orders. Under these scenarios, contractors may commit multiple violations, but never face a
consequence from the State for creating the problem in the first place.
• An administrative suspension does not allow a contractor to work, yet it does not
automatically release a homeowner from the obligation of working with the contractor. The
homeowner must pursue the contractor in an individual complaint and win his case before he
is assured that he can terminate the contract.
The Registrar's Office should:
~ Create a rule requiring that residential contractors give homeowners a consumer handbook
with all formal construction bids. The handbook would list elements common to good
construction contracts and display a collection of various sample contracts. It should tell
homeowners how to check the record of a contractor and how to document interactions and/or
disputes with their contractor. The Registrar's Office should develop the handbook.
(Recommendation SA)
~ Set up their official public record posting about each contractor licensee to display the number
of times the Registrar's Office verified a complaint against a contractor and the nature of each
complaint. It should also indicate the filing date of the complaint, how the complaint was
handled and at what stage it was resolved/closed (e.g., before inspection, after corrective work
order, after citation, after hearing, after official order, after re-hearing). (Recommendation SC)
~ Display in contractors' records the number of times the Registrar's Office had to issue a
corrective work order or citations. (Recommendation 5D)
The Legislature should consider:
~ Authorizing automatic criteria in statute, that make contracts voidable, thus gIvmg
homeowners a release option in situations where licensed contractors are administratively
suspended and fail to clear the suspension after ten to twenty days. (Recommendation 5B)
IX
~ Authorizing automatic trigger points in statute that prohibit contractors, who have too many
open complaints, from taking on more work until they resolve the complaints or they fall back
to a lower number. If a contractor has a defined number of open, confirmed complaints filed
against him in a certain period, he should not take on new business until the number of such
complaints fall back below the trigger number. SB 1417 addressed the issue of contractors
with excessive complaints, but it focused only on contractors who abandon five or more jobs.
Contractors who gamer numerous complaints due to poor workmanship are no better than
those who abandon jobs. In a sense, they are worse because such job sites are sometimes left
in worse shape than before the work began.
The natural trigger to limit contractors with an elevated level of confirmed complaints would
be the Recovery Fund maximum value. In other words, once confirmed claims against a
contractor exceed the total possible Recovery Fund limit, it would block the contractor from
taking on new business until the complaints are resolved to the point the Recovery Fund limit
is not in jeopardy. With current fund limits, this would mean a contractor could face six full
claims before they would be hit the trigger point and have to stop accepting new work.
(Recommendation 5E)
ISSUE 6-
ARE SURETY BOND AMOUNTS SET APPROPRIATELY?
See pages 42 - 48
We found that the surety bond system in Arizona is not adequate:
• Bond amounts are set low in Arizona ($5,000 to $15,000). Contractors usually purchase their
bond for about 3% ofthe face amount, so most pay less than $500 for their bond.
• Bonds are so inexpensive (usually less than $500); their protection fails to concern their
purchasers (contractors). Contractors usually purchase their bond for about 3% of the face
amount, so most pay less than $500 for their bond.
• The surety bond system implies more than it delivers. Because bond amounts are low, they
tend to suffice for only one or two creditors. Usually homeowners with claims against
contractors do not get to collect on the bonds because sub-contractors have already done so.
Once the face amount of a bond is used, the bonds have no value until the contractor pays to
have them financed again. In this way, it is different from insurance.
• Consumers think that when a contractor is bonded, they are safe from monetary loss at least to
the extent of the bond amount. This is not true. Bonds are not insurance and once claimed,
they are not available to other wronged parties. Even if one is lucky enough to claim a bond,
the reimbursement might not fully cover the loss due to the low bond face amount. None-the­less,
the bond system tends to reduce the financial pressure on the Recovery Fund.
• The Registrar's Office is not legally bound to inform consumers about the possibility of
collecting on a financial loss (resulting from a contractor) by way of claiming a contractor's
bond. Sometimes bonds are available, yet go unclaimed. Homeowners are ignorant of this
fact so they fail to claim the bond.
• One way to rein in contractors more quickly is to claim a contractor's bond. If the claim is
paid and the bond used up, then the ROC administratively suspends the contractor until he
replaces the bond. Yet, because the Registrar's Office does not inform complainants of this,
homeowners do not know that reparation money other than the Recovery Fund might be
available to them.
x
• Twenty-three states require bonding and the majority of them set their bond minimums at a
higher amount than Arizona. The other states' bonds tend to have amount~ starting at $10,000
or $15,000. [See Exhibit G, "Residential Contracting by State] Some states, such as Iowa and
South Dakota, have performance bonds.
• Contractor liability insurance requirements are lenient in Arizona. Neither errors and
omissions nor general liability insurance policies are required for residential Arizona
contractors.
• Each state handles regulating contracting and residential construction risk differently. Twenty­one
states require various forms of insurance. Most of these states have minimum coverage
amounts in the range of $150,000 per occurrence and $500,000 in the aggregate.
Approximate costs are $1,300 annually for $500,000 in aggregate coverage and about $1,500
for one million in coverage.
• Some states require bonds and insurance.
• Eighteen states require contractors to submit statements of financial condition or credit reports
with their license renewals. Fourteen states require Recovery Fund participation as a form of
insurance. [See Exhibit G, "Residential Contracting by State] Financial information is an
important preventative measure to stop contractors from engaging in more business than they
can financially back and to thwart bad contractors from engaging in fraudulent schemes.
The Legislature should consider:
);. Having fewer bond levels and set the bond amounts to $15,000 for a single license and
$30,000 for a dual license if a contractor does $500,000 or less in annual work. For
contractors with annual contracts exceeding $500,000, the bonds should be $25,000 for a
single license and $50,000 for contractors with dual licenses. (Recommendation 6A)
);. Requiring contractors to have liability insurance. They could benchmark to the average
amount of coverage required in the twenty-one states that mandate liability insurance.
(Recommendation 6B)
);. Amending contracting statutes to require the Registrar's Office to obtain more financial
information on prospective contractors. A component of this could be requiring contractors to
demonstrate proof of financial accountability when submitting applications or renewals. The
Legislature could look at what states such as Alabama, Arkansas, California, Florida, Hawaii,
Idaho, Louisiana, Maryland, Michigan, Mississippi, Nevada, New Hampshire, North Carolina,
South Carolina, Tennessee, Utah, Virginia and Wisconsin require of their contractors to prove
financial accountability. Professional accountants should review and attest to these statements
prior to their submittal to the Registrar's Office to prevent contractors from submitting
untruthful statements. The Registrar should use the financial statements to set each
contractor's bond amount. Arizona legislators could examine Florida, Utah, Nevada or
California methodologies as examples of jurisdictions with stronger contractor applicant
requirements. (Recommendation 6C)
);. Amending statutes relating to contractor bonds and complaints to require the ROC to notify
every complainant, upon the filing of their complaint, whether or not the contractor's bond is
available or has been claimed. The ROC already sends a notification to both parties
acknowledging the complaint and announcing the date of property inspection. They should
note the bond amount and status on the notification form and explain the bond claiming
process too. The form would then serve three purposes - - as a receipt to confirm the ROC
received the complaint and notice to the contractor, as a notice about the date of the property
inspection and as notification ofthe bond amount and availability. (Recommendation 6D)
XI
ISSUE 7--
ARE MONETARY PENALTIES APPROPRIATELY APPLIED AGAINST CONTRACTORS
FOUND TO BE IN VIOLATION OF STATUTES?
See pages 48 - 52.
The Registrar's Office is not tracking their penalty program well.
We noted:
• Two statutes [see A.R.S. §§32-1154(a) (23) and 32-1154(a) (18)] direct the Registrar's Office
to levy penalties.
• There was not evidence that penalties against errant contractors are consistently levied when
applicable [under A.R.S. §§32-1154(a) (23), Failure to Take Appropriate Corrective Action;
or 32-1154(a) (18), Contracting While in Suspended/Inactive Status].
• The ROC does not issue penalties if complainants resolve their complaint. Contractors might
be guilty and have violated A.R.S. §§32-1154(A)(23), yet if they later manage to satisfy the
complainant, they tend to avoid hearings, official findings and the whole penalty phase. It
takes a long time for penalties to be issued and there are no instances where penalties accrue
automatically under certain conditions.
• We did not see comprehensive results of current collection activities. We saw one reference
to penalties in a spreadsheet taken from a prior Auditor General audit (2003), but that was it.
• The Registrar of Contractor's Posting List appears in two-month increments on the Registrar's
web site. The PDF files only list the contractors who lost their licenses due to failure to pay
civil penalties. The lists are not comprehensive, but cover weekly summaries ofROC activity.
The posting does not give overall tabulations of the number and amount of penalties levied or
collected.
• We found no evidence the Registrar's Office receives notice when city or county inspectors
tag a property for failing to adhere to local building code criteria.
• The Registrar's Strategic Plan does not have a performance measure to track and report
penalties authorized and collected each year.
• The Registrar's staff failed to produce penalty data for us, despite having approximately a year
and a half to generate the information.
The Registrar should:
>- Have a performance measure to track and report penalties assigned and collected each year.
(Recommendation 7A)
The Legislature should consider:
>- Establishing triggering criteria in statute to facilitate the issuance ofpenalties immediately if a
contractor fails to respond (defaults), otherwise completely fails to fix items listed on a
corrective order with no explanation or fails to ask for a compliance hearing.
(Recommendation 7B)
>- Requiring contractors forward inspection reports to the Registrar's Office when local
government building inspectors cite the contractor for failing to build to code and the
contractor takes longer than twenty-one days to make corrections. The statutory change
should then require the contractor follow-up with a notice to the Registrar's Office once they
have fixed the items listed as problems in the inspection. (Recommendation 7C)
XII
>- Refining the statutory criteria for detennining when the Registrar must pursue disciplinary
action, independent of complainants' individual settlements, with contractors.
(Recommendation 7D)
ISSUE 8-
THE DIFFICULT TWO-PRONGED LEGAL AND FACTUAL QUESTIONS:
(A) At what point can a homeowner move on to a new contractor
to fix a problem?
(B) At what point can a homeowner rightfully deny access to the
original contaetor?
See pages 53 - 60.
We found:
• Neither statutes nor rules clearly answer these questions. What is apparent is the current
system is confusing and takes too long. Statute nor rule definitively list what steps a
homeowner should take, nor how long they should wait, to demonstrate their good faith
attempt to address disputed matters with the original contractor. Waiting nine to sixteen
months to make repairs is not a reasonable option for most homeowners. Yet there are no
plain answers for homeowners. Instead, the laws offer owners only general guidance. It will
take months before a judge or the Registrar issue a ruling. The laws encourage homeowners to
make an educated guess whether or not to proceed. Even the plain language found in original
contracts is not enough because contractors can contend the homeowner somehow prevented
them from fulfilling the contract.
• No one is empowered to give them a definitive answer or permission. The ROC workers
could not guarantee that claims of abandonment would hold up despite weeks or months of no
response from the contractor. The Registrar's Office could not guarantee the owners that the
cost to repair the errant work would be reimbursed even though building inspectors verified
the work was faulty. The owners ask, "What citizen in the state would be willing to live in a
house waiting for months at a time where wiring has started one fire and threatened to start
another, where there is no air conditioning in summer, or where the back end of their. home
was exposed to the elements, burglars and pests?" The owners thought some circumstances so
poisoned the relationship that the system should have a mechanism to more quickly deal with
such a breach.
• The existing laws assume homeowners can wait months before fixing what is broken with
their home. In many instances, it is not reasonable to delay repairs. Delays might create
unhealthy conditions, leave inherent hazards or swell a homeowner's liability. It does not
seem reasonable to make homeowners wait for the better part of a year or even longer for a
definitive response. The present system fails to deal with reasonable habitability issues. The
system takes a substantial amount of time if the contractor even minimally contests the
problem. It invites bad actors to "game the system." There should be criteria where the
homeowner is given, in limited circumstances, emergency authority to proceed with specific
repairs.
The Legislature should consider:
>- Going beyond the changes they made via Senate Bill 1417 relating to summary suspensions
and define statutory criteria to have expedited inspections and corrective work orders in
XIII
limited situations where the Registrar's Office confirms the original contractor's error,
negligence or abandonment created an acute hazard. Acute hazards could be listed in statute.
Example ofacute hazards are:
• Faulty electrical work threatening an immediate fire or electrocution danger.
• Disconnected essential services such as electric/gas/water (disconnected for longer than
three days).
• Inoperable cooling or heating apparatus when ambient temperature reaches higher than
90 degrees or lower than 45 degrees Fahrenheit and alternative heating or cooling
mechanisms are not available for the structure. (disconnected for longer than three days)
• Poorly engineered roofs, walls or bearing beams, which threaten collapse.
Homeowners should be allowed to petition for quick relief in such scenarios. Petitions to
expedite should have at least three components. The homeowners would need to demonstrate
to the satisfaction of the Registrar's Office that the problem poses a threat of serious bodily
injury, violates health codes or otherwise make the house uninhabitable until fixed.
Furthermore, the property owner would need to show that the problem was the result of
negligence or error committed by the contractor's company and not a planned event (e.g., a
pre-agreement where both parties, know and agree that repairs will be so extensive, the
property owner must vacate the property). Lastly, the contractor must have been given at least
three days to make repairs.
The contractor would still have the right to contest whether or not they are at fault through the
regular course of due process, however, the matter would then just be about the fault
determination and possible Recovery Fund or other reparations. This recommendation should
be addressed when Recommendation 4A and 4B, relating to summary suspension, are
addressed. (Recommendation 8A)
>- Defining statutory criteria to allow homeowners to hire a new contractor when a contractor
abandons and does not attempt to finish a job. No homeowner should have to wait past the
repair time stipulated by the Registrar's Office in the corrective work order. From that date
on, the homeowner should be free to hire a different contractor to resolve the problem unless
the contractor can provide credible evidence the homeowner barred him from accessing the
job in violation ofROC directives. If the contractor produces credible evidence, then the
matter must proceed through regular due process channels. However, if the contractor is silent
or provides no rationale to the Registrar to explain how the property owner prevented work,
then the Registrar can permit the property owner to hire a different contractor.
Senate Bill 1417 focuses on stopping contractors who have five or more claims of
abandonment from taking on more work, but it does not help homeowners who are already the
victim of abandoned projects. Something should be done for these types of cases too.
Enacting the recommendation would still give the contractor the right to contest whether or
not they are at fault through the regular course of due process, however, the matter would then
just be about the fault determination and possible Recovery Fund reparations.
(Recommendation 8B)
XIV
ISSUE 9-
CONTRACTORS FREQUENTLY OPERATE AS A LIMITED LIABILITY COMPANY
(LLC). WHAT OMISSIONS IN ARIZONA REVISED STATUTES, TITLE 32, RELATE TO
CONTRACTORS OPERATING AS LIMITED LIABILITY COMPANY ENTITIES?
See pages 60 - 62.
• In the course of our review, we noticed instances where limited liability company (LLC)
references, in statutes governing contractors, were inconsistent and ambiguous when
compared with corporate and partnership references. There are five omissions in A.R.S. Title
32 relating to LLC entities. In many cases, the statutes were silent about limited liability
company requirements, yet imposed requirements on partnerships, corporations and sole
proprietors. In the context of this investigation, it matters because contractors frequently
operate as a limited liability company. The five statutes are A.R.S. §§32-1101, 32-1122, 32­1151,
32-1156 and 32-1166 relating to contracting, should be updated to clearly reflect that
they apply to limited liability companies too.
• The Registrar's form mentions limited liability companies, but it asks for a list of corporate
officers and directors. Limited liability companies do not have corporate officers or directors,
they have "members" or "managers" or "managing members." The form should ask LLC
entities to list all managers and list members who hold a 25% interest in the company.
• Further, the Registrar's form asks limited liability companies to file a copy of their limited
liability company agreement file at the Corporation Commission, but no such filing exists.
The Corporation Commission does not require limited liability companies to file their
agreements. The Registrar's Office should be asking for the limited liability company's
"articles oforganization" in order to accurately reflect the proper legal terms.
The Registrar's Office should:
~ Correct their application form to use the proper legal terminology for limited liability
company leadership (members, managers, member-managers). (Recommendation 9B)
~ Correct their application form to specify the proper legal terminology relating to the original
organization of limited liability companies. Limited liability companies file "Articles of
Organization" with the Corporation Commission, not "Operating Agreements."
(Recommendation 9C)
The Legislature should consider:
~ Amending the five identified statutes relating to contracting (A.R.S. §§32-1101, 32-1122, 32­1151,
32-1156 and 32-1166), to clearly reflect that they apply to limited liability companies
too. (Recommendation 9A)
ISSUES 10, 11, 12 AND 13 --
DOES THE REGISTRAR FAIL TO ENFORCE CONTRACTING STATUTES RELATING
TO WORKERS COMPENSATION, UNEMPLOYMENT INSURANCE, SOCIAL SECURITY
PAYMENTS AND OTHER REQUIRED TAXES?
See pages 63 -71.
The Registrar of Contractors enforcement process is inconsistent relating to:
• A.R.S. §§32-1122(B)(1)(i) and 32-1154 (A)(4) relating to workman compensation laws;
xv
• AR.S.§32-1154 (A)(4) governing social security; and §32-1154 (A)(4) governing
unemployment insurance laws;
• and AR.S. §32-1154 (A)(5) governing income taxes or any tax imposed by title 42, chapter 5,
articles 1 and 4 and incurred in the operation ofthe licensed business.
The Registrar' Office frequently fails to pursue contractors in instances where they have reason to
believe a contractor has violated one of these laws. It is not clear what propels the Registrar's Office
to pursue a contractor for violation of these statutes or what leads them to detennine not to follow up.
The ROC managers say they are complaint-driven, but business obligations such as workers
compensation, unemployment insurance or tax payments by contractors are not the concern of
homeowners.
A number of states require contractors to prove with their applications and renewals that they are
current with their workers compensation claims, unemployment insurance payments and taxes.
Arizona
The management adage, "What gets tracked, gets done" is applicable. The ROC does not actively
track whether or not contractors maintain their obligations to the workers compensation fund,
unemployment, social security or other transaction taxes.
Relating to Contractors Failing to Pay Workman Compensation
The Registrar's Office should:
~ Develop formal mechanisms (e.g., interagency agreement) to receive and deliver information
related to workers compensation violations to the Industrial Commission.
For example:
• Upon the ROC receiving infonnation or otherwise determining a contractor may not have
adhered to workers compensation laws, the ROC should be obliged to inform the
Industrial Commission of the allegation. .
• Similarly, the Industrial Commission should inform the Registrar's Office when they
substantiate a contractor has failed to adhere to workers compensation laws.
(Recommendation IDA)
~ The Registrar should develop rules that automatically trigger a summary suspension of a
licensed contractor upon the Industrial Commission substantiating the contractor's failure to
adhere to workers compensation payment laws. The finding should trigger AR.S. §32­1171(
A) and summarily suspend the contractor's license. This would be similar to the
Registrar's process when the Corporation Commission notifies the Registrar that a
contractor's corporation or limited liability company has been dissolved. [NOTE: The
Legislature ordered the Registrar to develop rules to implement SBI417.] (Recommendation
lOB)
~ Develop a performance measure to reflect their activity and enforcement of AR.S. §§32­I
I22(B)(l)(i) and 32-1154 (A)(4) relating to workers compensation laws requirements for
licensed contractors. (Recommendation IDC)
Relating to Unemployment Insurance
The Registrar's Office should:
~ The Registrar's Office should collaborate with the DES to develop formal mechanisms to
receive information related to unemployment insurance violations from the Department of
Revenue. (Recommendation l1A)
XVI
~ Develop a performance measure to reflect their activity and enforcement of A.R.S. §32­I
I54(A)(4) relating to unemployment insurance payment requirements oflicensed contractors.
(Recommendation lID)
Relating to Social Security Taxes
The Registrar's Office should:
~ Develop formal mechanisms to notify the Internal Revenue Service when the ROC receives or
develops information indicating a contractor may have violated social security obligations.
The ROC should be obliged to inform the Internal Revenue Service of the allegation and facts.
(Recommendation 12A)
Relating to income taxes, withholding taxes or any other tax imposed on contractors and
incurred in the operation of the licensed business.
The Registrar's Office should:
~ Developing formal mechanisms (e.g., an interagency agreement) to receIve and deliver
information related to tax violations with the Department of Revenue.
For example:
• Upon the ROC receiving information or otherwise determining a contractor may not have
adhered to workers compensation laws, the ROC should be obliged to inform the
Department of Revenue ofthe allegation.
• Similarly, the Department of Revenue should inform the Registrar's Office when they
substantiate a contractor has failed to adhere to workers compensation laws.
(Recommendation 13A)
~ Develop a performance measure to reflect their activity and enforcement of A.R.S. §32-
1154(A)(5) relating to tax requirements of licensed contractors. (Recommendation 13C)
Relating to Unemployment Insurance
The Legislature should consider:
~ Adjusting Title 32, concerning licensed contractors, to automatically trigger an administrative
suspension of a contractor's license at the ROC once DES substantiates the contractor failed to
adhere to unemployment insurance laws. (Recommendation lIB)
~ Adjusting Title 32 concerning licensed contractors to require the Registrar's Office to collect
updated unemployment insurance payment information from all contractors. Essentially, it
would be a declaration by contractors (with employees) that unemployment insurance
provisions were met. It could be a component of the biennial licensing process.
(Recommendation 11 C)
Relating to Social Security Taxes
The Legislature should consider:
~ Adjusting Title 32 concerning licensed contractors to require the Registrar's Office to collect
updated social security payment information from all contractors. Essentially, it would be a
declaration by the contractor that his business has met its social security obligations. It could
become a component of the existing biennial licensing process. (Recommendation 12B)
Relating to income taxes, withholding taxes or any other tax imposed on contractors and
incurred in the operation of the licensed business.
The Legislature should consider:
XVII
~ Adjusting Title 32 regarding licensed contractors to require the Registrar's Office to collect a
declaration that transaction taxes were paid by the contractor. It could become a component
ofthe existing biennial licensing process. (Recommendation 13B)
ISSUE 14-
TO WHAT EXTENT DOES THE REGISTRAR OF CONTRACTORS OFFICE CHECK
CONTRACTOR BACKGROUNDS?
See pages 71 - 75.
The current background-checking process is not thorough and this can leave homeowners in an
exposed and vulnerable position. Residential contactors have enormous access to items of value
when working on homes and they work near children and other vulnerable individuals.
We found:
• Statutes do not require and the ROC does not perform adequate background checks.
Background checks are only performed as a follow-up process on certain applicant provided
information.
• Applicants are on their honor to truthfully complete applications, but the ROC does not audit
applications unless given a tip or otherwise becoming suspicious. The application asks
contractors to disclose felony convictions. They need not disclose misdemeanors, civil
lawsuits or bankruptcies, so the contractor is not required to reveal misdemeanor convictions
relating to personal violence, misconduct involving a deadly weapon as provided in section
13-3102, dishonesty or fraud, arson, theft, domestic violence, narcotics (Arizona Revised
Statutes Title 13, Chapter 34, or similar) or sexual misconduct.
• Fingerprint cards are not required as they are for numerous other professions. However, the
Registrar's Office can decide to fingerprint any applicant if they detect problems like multiple
drivers licenses.
• Contractors are not required to reveal past or current litigation or bankruptcies.
• The Registrar of Contractors does not require a credit check of contractors.
• Eighteen states run credit checks or ask contractors to financially document they are
financially viable to be in business as a licensed contractor. Florida, Utah and California are
all examples of states having stronger applications than Arizona.
• There is not a national database for contractors similar to what exists for real estate appraisers,
nurses, doctors and behavior therapists.
• Accurate and current mailing addresses for contractors are critical, yet the ROC database does
not reflect the status of contractor addresses. The ROC might have discovered a contractor's
address is undeliverable, but they do not reveal this on their database.
The Registrar's Office should:
~ Improve their vetting process for contractors. Their background checks should be more
thorough and ask more questions like the Utah and Florida contractor applications or the
ArIzona Department of Insurance application. The applications and biennial renewal forms
should require contractors to disclose, excepting vehicular matters, whether the contractor was
ever convicted of a misdemeanor or felony in any state. Contractors answering "yes" should
be required to provide the subject matter, date, court and sentence. (Recommendation 14A)
XVIII
The Legislature should consider:
}o> Developing legislation to require contractors be fingerprinted with their initial application.
Realtors, teachers and others in a position of trust are required to have fingerprint clearance.
Contractors have access to homes and work near children and other vulnerable persons.
(Recommendation 14B)
}o> Developing legislation to require contractors to provide, as a component of their application or
biennial license renewal a summary of past and current litigation including case number, date,
courts, all parties, subject matter and disposition. Contractors should be asked if all
judgments, liens or taxes were paid as required. The Utah application and a number of other
Arizona agency applications (e.g., Medical Board, Securities, Gaming, Liquor and Real
Estate) ask applicants to provide information about judicial actions involving themselves.
(Recommendation 14C)
}o> Adjusting Title 32 concerning licensed contractors to require contractors to biennially report
their known place of business, their statutory agent and answer the question, "Is the
address/known place of business information identical to the similar Corporation Commission
or Secretary of State record?"
Additionally, these adjustments to Title 32 relating to business addresses should require the
ROC to post undeliverable business and statutory agent address information on the ROC
contractor web database upon receipt from the Corporation Commission or Secretary of State.
The ROC should promptly test undeliverable address information they receive from other
sources (via a notice letter). Upon confirming the address is undeliverable, the ROC should
post the information to their web database. (Recommendation 14D)
ISSUE 15-
WHAT IS THE SCOPE OF DISCIPLINE AFFECTING A CONTRACTOR'S REMAINING
LICENSES ONCE HE HAS ONE LICENSE SUSPENDED OR REVOKED?
See pages 75 - 78.
We found:
• When a contractor is under an administrative suspension, they are not supposed to perform
any contracting duties until they fix the administrative problem that led to the suspension, yet
some contractors ignore this rule.
• In workmanship situations where the ROC has already suspended or revoked one license, then
the Registrar must gather the contractor's other licenses and go through a second process to
determine the fate of the remaining licenses. There. currently are no mechanisms to
automatically cancel remaining contracting licenses possessed by the contractor if one of his
licenses is revoked. Instead, Registrar staff or complainants must initiate another complaint
after the original suspension or revocation order. It is only at that time the other licenses are
gathered and called into question.
• The ROC cannot take away a license automati~ally from a contractor if they issue it in error.
If they issue a license in error, the Registrar must go through the due process routine to revoke
the license that should not have been issued in the first place.
• The current process to revoke multiple licenses takes too long. Revoking the second set of
licenses requires a second due process run. So this greatly extends the time that problem
contractors are allowed to operate and solicit work. In so doing, it exposes the public to risk.
XIX
• Contractors can request new licenses subsequent to a homeowner(s) filing an official
complaint. Nothing in current statute prohibits the ROC from issuing a new license while the
old one is under question.
The Legislature should consider:
)l- Developing legislation prohibiting the issuance of new licenses to contractors while they
have open complaints. Instead, legislators could create a new category of contingent or
provisional licenses. (Recommendation 15A)
)l- Developing legislation authorizing the Registrar to revoke remaining licenses or rescind
places where the contractor is listed as a qualifying party simultaneously in instances when
the Registrar orders the revocation of one of the contractor's licenses. The initial hearings,
findings and order should address the contractors other licenses and listings as a qualified
party so as to avoid the redundancy required with the existing system. The scope of
discipline affecting a contractors' remaining licenses should be declared and debated in the
original charges and hearing process. A completely new set of hearings should not be
necessary. (Recommendation 15B)
ISSUE 16-
TO WHAT DEGREE ARE GENERAL CONTRACTORS REQUIRED TO VERIFY
WHETHER A SUB-CONTRACTOR HAS A LICENSE IN GOOD STANDING WITH THE
REGISTRAR OF CONTRACTORS?
See pages 78 - 79.
Contractors may hire licensed or unlicensed individuals to work for them. However, contractors must
use a licensed sub-contractor when the task requires licensure. Unlicensed employees improperly
engage in work requiring construction licensure typically for one ofthree reasons.
1. They lie to general contractors about their license status.
2. They do not realize the task requires licensure.
3. They and the general contractor knowingly break the law.
We found that lax documentation practices contribute to the problem.
• Sub-contractors are not required to offer any proof oftheir licensure to general contractors.
• This makes it hard for the Registrar's Office to punish general contractors who knowingly
have unlicensed workers performing work which requires a license. Sloppy general
contractors avoid punishment by saying, "I didn't know the sub was not licensed."
• Additionally, there is no requirement to license construction job superintendents.
• Homeowners say these regulations create an unfair situation because they are held to a
higher standard than licensed contractors are. The ROC makes homeowners verify their
replacement workers have appropriate contractor licenses to perform particular tasks.
Without this verification, the ROC disqualifies the workers' bills from fund reparation. The
same standard is not applied to general contractors because they do not have to use licensed
job superintendents, they do not have to check whether their sub-contractors are licensed,
they can use handymen and day laborers and they can count their own work. Homeowners
cannot do any ofthese things.
• A.R.S. §32-1121 relates to handymen restrictions and it trips up many people. The law has
a provision stipulating the total construction cost cannot exceed $1,000 if one uses a
handyman.
xx
The Legislature should consider:
)I. Developing legislation to require contractors to obtain the license number and initially verify
the good status of each sub-contractor they use. In turn, sub-contractors should then be
required to deliver notice of any change of license status to the general contractors they work
for within thirty days of any change. (Recommendation 16A)
)I. Revise the statute relating to handymen. A.R.S. §32-1121 places a $1,000 limit on the total
repair cost of a job, not just a $1,000 limit on what work can be done by a handyman. It does
not apply to contractors, only homeowners. Thus, an inequity occurs. A handyman should be
allowed to perform up to a $1,000 in labor which does not require licensure. The total job cost
should not be tied to the handyman. (Recommendation 16B)
)I. Requiring site superintendents be licensed. This requirement will require the creation of a
new category oflicense. (Recommendation 16C)
ISSUE 17-
IS IT PROPER FOR THE REGISTRAR TO ENCOURAGE COMPLAINANTS TO PURSUE
CASES ON THEIR OWN WITHOUT THE BENEFIT OF LEGAL COUNSEL?
See pages 79 - 82.
Parties represented by attorneys fend better at the Office ofAdministrative Hearings.
• Both homeowner and contractors fared better when they used attorneys according to a survey
of cases performed by the Director ofthe Office ofAdministrative Hearings.
• In this case, complainants watched two of the early cases fail and attributed it to the owners
representing themselves without an attorney. Families in latter cases got attorneys and they
won.
• The owners complained they got bad advice when told they could represent themselves in
administrative hearings. They said ROC staff and materials are indifferent and imply
attorneys are not necessary. While it is factually true attorneys are not required, citizens said
it gave them the wrong impression. They expected conversational meetings where they could
just say their story and show their documents, but instead got a hard-edged, legalistic,
unforgiving process that intimidated them. Once they experienced actual hearings, the
citizens felt the ROC failed to prepare them. Owners thought the ROC should advise citizens
that because the two agencies' systems are so complicated, parties tend to fare better with an
attorney.
• The Registrar said, "It is wholly inappropriate to advise the parties that they should use an
attorney."
The Registrar's Office should:
)I. The Registrar's Office should change their oral instructions, pamphlets and web site
information so they note that parties who utilize a lawyer in contested cases usually improve
their position. The instructions could then state a party/layman may represent himself, if he
cannot afford an attorney. (Recommendation 17)
XXI
Ombudsman Office - Citizens' Aide
Final Report of Investigation·
Registrar of Contractors
Case #20062692
December 12, 2008
Final Report ofInvestigation
Case # 20062692
December 12, 2008
Registrar of Contractors
SUMMARY
Nine homeowners contacted us upon deciding the Registrar of Contractor's system was
failing them. The homeowners became involved in the Registrar's process when they filed
complaints against a dual-licensed contractor.
Some of the complainant homeowners initially filed with the Registrar's Office, others with
the Superior Court and some filed at both locations. Each owner desired financial recovery
via the Residential Recovery Fund. Access to the Recovery Fund is dictated by statutory
constraints and controlled by the Registrar's Office. Homeowners in both the administrative
and the civil court processes felt the Registrar of Contractors Office seemed indifferent about
the length of time and difficulty of their process. Owners and contractors both complain to
the Ombudsman Office that the Registrar's Office process takes too long.
Most of the twenty-five homeowners upset with the contractor in question filed their
complaints with the Registrar in the spring or summer of 2006. After about two years, these
complaint cases had gone through most of the system and were closed. Twenty-three of the
complaints resulted in discipline while two complaints settled or withdrew. Eight
homeowners recovered money from the Recovery Fund to compensate or partially
compensate them for their loss. The Registrar's Office reported on April 16, 2008, that the
Attorney General's Office would likely approve the ninth claim for the remaining monies
($24,359.66). At that point, the Registrar will close the fund because it will be at its limit.
Seven deserving homeowners, with a total of $96,515 in unrecoverable awards, will go away
empty-handed despite proving the contractor's guilt.
ALLEGATION
The complainants alleged the Registrar of Contractors processed the complicated Recovery
Fund complaints in an untimely manner.
OVERVIEW
The complainants were overwhelmingly upset at how long the process takes. Many became
embroiled in the dispute with the subject contractor in the previous year or even the year
before that. They said they alerted the Registrar's Office months earlier to the contractor's
bad acts, but a continuous stream of new people were victimized as the Registrar's Office
plodded through their long process. Complainants stated that they had no idea the Registrar's
complaint process would drag on for so long.
1
We worked with the Registrar's office to determine a total case time estimate for typical
administrative and court complaints. [See Exhibits A and B]. We determined that on
average, the administrative process at the ROC takes over 538 days and the ROC portion of
the court process takes approximately 178 days, with 123 days occurring subsequent to the
initial court action.
Consistently the vast majorities of contractors' licenses (slightly over 90%) are highly
regarded and are not involved in the complaint process. These licensees pride themselves on
quality workmanship and good customer service. Regrettably, there are a still a significant
number of contractors who receive a complaint. The Registrar of Contractors received 11,867
complaints in FYO? against 5,679 different licensees. In FY06, 11,974 complaints were
received.
About one-third of the complaints coming into the ROC are serious complaints requiring
adjudication. Most of these serious complainants seek reparation from the Recovery Fund.
The remaining two-thirds of the complaints are addressed relatively quickly because they are
less complex. Typically, less complex complaints are fixed or resolved prior to hearings, not
substantiated by the ROC, or the homeowner declines to continue.
In 2007, there were about 4000 or so serious complaints. About 2,700 (67%) resulted in an
administrative hearing while the remaining 33% went into default (uncontested). The ROC
reports that each year, about 3% ofthe contractors in Arizona are suspended or revoked.
Serious complaints must adhere to the lengthy course of action laid out in statute and rules. It
may take years to wind through the Registrar's system, as there is no expedited procedure.
When contractors fail to fix a problem, or otherwise fail to adhere to statutes or rules, they
become subject to penalty assignments including license suspensions or revocations; bond
forfeiture; the assessment of statutory penalties and/or Recovery Fund debt assignments.
However, getting to the point where a contractor is actually subject to a penalty is the rub.
This investigation will focus on the troubles created by such a long, complicated process.
BACKGROUND
The Arizona Registrar of Contractors (ROC) was established in 1931 by the Arizona State
Legislature to serve as the regulatory body over contactors. The Registrar issues licenses,
inspects for quality of workmanship and investigates complaints of statutory violations by
contractors. Currently, the ROC oversees 238 specific license classifications within the three
categories of commercial, residential, and dual licenses.
The ROC is a 90/1 0 self-funded agency, with 90 percent of the license fees reserved for
agency operations and the remaining 10 percent deposited into the State General Fund. Its
mission is, "To promote quality construction through a licensing and regulatory system to
protect the health, safety and welfare ofthe public." [Strategic Plan, 2008 to 2012.]
2
The Registrar of Contractors maintains the official record listing such things as the name,
address and type of license for each licensed contractor in Arizona. They gather and
disseminate histories of complaints against licensed contractors and administer the Recovery
Fund to reimburse financially harmed homeowners. The ROC also may issue orders to "cease
and desist" and impose civil penalties against persons who engage in contracting without a
license.
The Arizona Republic noted in a June 1, 2007 article that Arizona is one of 35 states that
licenses or registers contractors. Most of these states belong to the National Association of
State Contractor Licensing Agencies (NASCLA). Only 14 [AL, AZ, CT, FL, HI, IN, MA,
.MD, MI, MN, NV, NC, UT, VA] have variations of recoveryihome improvement guarantee
funds. Each fund is different and has its own unique benefits and limitations. In Arizona, the
Recovery Fund is exclusively for homeowners (owner-occupied residences).
Arizona homeowners have two courses of action available to them if they become embroiled
in a dispute with a contractor regarding defective construction. Subject to statutory time
constraints, they may file a complaint at the Registrar of Contractors or file a civil lawsuit in
court alleging warranty breach, contract breach or tort negligence. If they want, homeowners
can pursue both courses of action. Either method can lead to a Recovery Fund distribution.
The Fund's revenues come mainly from annual fees paid by residential contractors. All
residential contractors are required to participate in the Fund unless they can establish they are
able to maintain financial resources amounting to at least $200,000. Only a few contractors
opt for the financial resource route.
Money for the fund is collected primarily in the form of an assessment, which cannot exceed
$600 per biennial license period, paid by each residential contractor. The ROC is also
required to file an annual statement of financial condition of the Fund with the Department of
Insurance. The Fund had a balance at the end of FY 2005-2006 of $10.5 million and a
balance at the end ofFY 2006-2007 of$11.9 million.
History of Payouts from the Fund
FY 2003-2004 $5.5 million
FY 2004-2005 $5.8 million
FY 2005-2006 $4.1 million
FY 2006-2007 $6.2 million
The Registrar's Office considers the Recovery Fund healthy and well funded. The Registrar's
staff said that a few years ago they lowered the Recovery Fund assessment they collected
from each contractor because the fund seemed larger than what was needed to cover claims.
Claims against contractors must be filed within a two-year statute of limitations period. From
that point forward, the process usually takes well over a year or more before a homeowner
3
may succeed and get a Recovery Fund disbursement. The current administrative process is
taking approximately 535 days in straightforward cases where there are not appeals, re­hearings,
settlements or extraordinary delays. The current court process (in conjunction with
the Registrar's Office) is taking approximately 123 days at the ROC subsequent to a court
case decision for the plaintiff for straightforward cases. The preceding court process may
vary in time from a few months to over a year.
RESEARCH
We interviewed the complainants and eight of the Registrar's staff. In order to benchmark
nationally, we interviewed staff from the National Association of State Contractor Licensing
Agencies (NASCLA) and looked at statistical information on the Nationalcontractors.com
web site. To benchmark particular activities across agencies, we also interviewed staff from
the Industrial Commission; Motor Vehicle Department; the Board of Technical Registration;
the Department of Building, Fire & Life Safety, Medical Board; Nursing Board; Dental
Board; Chiropractic Board and the Office of Administrative Hearings.
We reviewed Arizona Revised Statutes, Title 32 and Title 41 and the Arizona Administrative
Code rules applicable to the Registrar of Contractors and the Office of Administrative
Hearings.
We examined the Registrar's complaint process flow and times. We compared the two routes
to the Recovery Fund (Administratively through the Registrar Office and via court). We
looked at the individual cases and examined how they fit into each process. We read the most
recent Auditor General Report, the Registrar's Strategic Plan for 2007 and their newer
Strategic Plan 2008 through 2012. We read the "Concept of Operations" for the Arizona
Registrar of Contractors relating to the proposed ROC Information Management System
(ROCIMS) by Data Site Consortium, Incorporated. We read the related Project Investment
Justification and Summary for the ROCIMS computer project prepared by the ROC. We
examined how other states in the United States handle residential contractor complaints.
We gathered relevant facts, such as:
1. The total number of active contractor licenses,
2. Number of complaints against licensed contractors,
3. Total complaints closed through compliance,
4. Number of cases resulting in a citation for hearing,
5. Total number ofdisciplinary license revocations and suspensions,
6. Total number ofdisciplinary penalties,
7. Recovery Fund claims received,
8. Recovery Fund claims paid out, and
9. Length of time it took if one successfully pursued a Recovery Fund claim (from
initial complaint to payout) in the administrative or the court process.
10. How the ROC measures their service and performance.
4
ISSUE 1 - - DOES THE RECOVERY FUND SYSTEM TAKE TOO
LONG?
We looked at contested complaints on their journey through the system to the Recovery Fund.
Created in 1981, the Recovery Fund covers claims against licensed contractors made by
owner-occupied residential homeowners. The Legislature established the Fund to assist
consumers who suffer financial loss due to the actions of a licensed residential contractor.
The Fund can compensate a homeowner injured by an act, a representation, a transaction or
the conduct of a residential contractor. Consumers can recover actual damages they suffered
up to 2 years after the loss occurred.
As exhibits A and B convey, the process is involved. Two titles in the Arizona Revised
Statutes corne into play. A.R.S. Title 32, Chapter 10 specifically relates to statutes regarding
contracting laws while Title 41 regards statutes relating to State Government including the
administrative hearing process utilized by the Registrar's Office.
In brief, the current process is as follows: When a homeowner files a complaint with the
Registrar of Contractors, initially the Registrar's Office urges the contractor and the
homeowner to attempt to resolve the dispute informally. If the parties do not work out their
differences, then an inspector sets up an inspection. In the inspection notice, the ROC tells
the contractor the homeowner is not happy and assigns an inspection date. About 8 weeks
later, inspectors for the Registrar's Office inspect the subject property. If the inspector
substantiates problerns, he has two to three weeks to write and issue a corrective work order.
The work order directs the contractor to make listed corrections and gives the contractor a
minimum of 15 days to remedy the deficiencies. The homeowner cannot bar the contractor
from the property during this period.
The homeowner must continue to press the Registrar to remain active and pursue the
contractor over the items listed in the corrective work order; otherwise, the ROC will close
the case. If the contractor fails to fix the problems or if the homeowner remains otherwise
unsatisfied, then the homeowner must request the Registrar's Office issue a citation. The
Registrar's office then notifies both parties with a formal notice.
The Registrar's Office must then schedule a hearing with the Office of Administrative
Hearings. It occurs about three months later. Within twenty days of the hearing, the
administrative law judge issues his findings and recommendations to the Registrar. If the
Registrar of Contractors reviews these findings and concludes a contractor is guilty of
violating contracting laws [contained in Arizona Revised Statutes Title 32 and the Arizona
Administrative Code R4-9-101 through R4-9-131], then the Registrar may issue orders
subjecting the contractor to various forms of discipline. A contractor could have their license
suspended or revoked, be issued a penalty for certain statutory violations, lose their bond,
incur a Recovery Fund judgment assessment against them or a combination of these things
can be imposed. If the goal is to get reparations from the Recovery Fund, the homeowner
must then take either their winning judgment from court or their Registrar order of suspension
or revocation and submit a request to the ROC documenting how much they wish to claim.
6
This claim amount is then subject to a second round ofhearings. The Recovery Fund staff are
told what amount was determined in the hearing and they start the check request process.
About twenty days later, the owner gets a check.
While the contested process outlined above might not sound too complicated, in practice it
usually takes over a year to complete and requires the active and steadfast determination of
the complainant. Thus, it might be over a year or more before a wronged homeowner can
prevail and actually receive a Recovery Fund award from the Registrar ofContractors.
To arrive at these numbers, we looked at how long it takes to get a Recovery Fund award via
the two means one may use to get an award --- through the administrative process and/or
through the civil court process. We asked the Registrar's Office if they had a flow chart,
matrix or other means of describing their process. Only a simplistic five-step matrix was on
the Registrar's web site. The Registrar said that detailed diagrams of their process were in
development. Their goal was to expedite the system in the near future. They planned to use
the new diagrams as tools to help them identify ways to expedite the system. Even though a
year has passed, we never received the diagrams.
Because there was no comprehensive pre-existing diagram or flow chart listing the
components of a typical complaint progressing through the system, and we were not given
anything from the Registrar's development team, we created our own. With the assistance of
Registrar of Contractor staff, we documented sixty-six possible components in the
administrative process [Exhibit A and Timeframe A] and over thirty-three components in the
Registrar of Contractor's segment ofthe court process [Exhibit Band Timeframe B].
We applied current timeframes to the two processes based on estimates provided by the
Registrar's staff. We based the scenario estimates on an optimistic, straightforward process
without early defaults, re-hearings, appeals, settlements or extraordinary delays. We
determined it could take a homeowner approximately 545 days to navigate the Registrar's
complete administrative process and approximately 123 days to navigate the Registrar's
segment of the court process, subsequent to the court's initial judgment, in order to collect
from the Recovery Fund.
This investigation examined cases that ran the complete continuum of the system, not cases
which settled early. The homeowners represented in this investigation each had cases in
which the contractor refused to correct deficiencies, yet disputed the complaint and demanded
his complete due process rights. In the few instances where the contractor admitted guilt and
asked to settle, he ended up defaulting. When the settlements failed to last, the impacted
homeowners had to rejoin the complaint process by asking the Registrar's Office to reopen
their complaints.
Timeframes
We separated the time component into two segments for each of the two processes. We asked
how long the overall process takes to move through court or move through the administrative
route if one is successful in getting a Recovery Fund payout. In other words, how many days
7
would typically lapse from the time a complainant files a complaint, to the day they get a
check from the Fund?
We knew both processes usually require two hearings. So we also wanted to know a subset of
the first question, namely, what was the length of time between the first hearing and the final
payout? In other words, once there was an initial judgment determination by the court or a
revocation/suspension by the Registrar in the administrative process, how long would it be
before a homeowner got reparation?
The timeframe for the two processes
For the first segment, we extensively interviewed the Registrar's division leaders and
developed both narrative and numerical exhibits designed to illustrate the steps within the two
processes and their time estimates. Exhibit A is a narrative of the Administrative route. We
documented 66 distinctive components in the administrative process. This translates
numerically into a 43-step process.
Exhibit A1 documents a typical timeframe and shows how this can take 545 days even if no
judicial reviews or other appeals are required. Should additional hearings be required, each
one might take months to get on a civil court or Office of Administrative Hearing calendar.
We estimated that an administrative case could theoretically drag out over 1,100 days beyond
the typical timeframe if a party dragged out meetings, contested everything possible and got a
hearing or appeal at every given opportunity. Such an excruciating case could last 1,645 days
(545 + 1,100 = 1,645).
Exhibit B is a narrative of the civil court route to the Recovery Fund. We documented 33
typical components in the civil court process leading to the Recovery Fund. This translates
numerically into a 29-step process. Exhibit B1 documents a typical timeframe and shows
how this translates numerically into 178 days of interaction with the Registrar of Contractors
Office. This amount equates to 55 days of likely interaction with the ROC, concurrent with
court time, followed by an additional 123 days after the case is won in court. It does not
count appeals. Should additional hearings be required, each one usually takes months to get
on a civil court calendar.
The process from the point of judgment forward
We then honed in on the final segment of the process. We asked how long it typically takes a
complainant to receive payment from the Recovery Fund once the homeowner wins a
judgment in Superior Court or obtains a final disciplinary order of suspension or revocation
from the Registrar. The staff reported that in FY06, the actual time range ran between 135
and 195 days and had an average of 156 days. In FY07, it took longer. The average was 180
days. It is important to remember this time runs after the plaintiff gets through the court
process or after they obtain an official order from the Registrar in the administrative process.
Court action can take anywhere from a couple of months to a couple of years. The staff said
it also depends on how fast homeowners submit their judgment to the Registrar of
8
Contractors. If a homeowner fails to notify the Registrar's Office at the beginning, when the
homeowner commences action for a judgment in civil court, there is no formal penalty.
However, in that case, it delays the claim because the Registrar's Office must still verify the
items and document their findings.
Exhibit AI, the administrative process, shows that if the Registrar's Office took all the time
they allocate, then it would not be unusual for 249 days to elapse from the date a contractor's
order of suspension! revocation is effective to the date ofRecovery Fund payout [#39 through
#66]. Exhibit BI, the civil process, shows approximately 123 days elapse from the date the
ROC receives a judgment from a court judge until the date of payout from the Fund [#9
through #33]. These numbers do not reflect the time actually spent in court, but only the time
spent in the Recovery Fund line. Appeals or other court actions subsequent to the original
judgment are not controlled by the Registrar's Office and could take an indeterminate amount
oftime.
Complainants'View
The homeowners think the process takes too long if one desires Recovery Fund reparation.
They said ROC inspections took a ridiculously long time to schedule and were subject to re­scheduling
delays. It was not unusual to wait for over two months for an inspection. They
also were upset that administrative hearings took months to schedule or re-schedule.
Registrar of Contractors View
The Registrar's office does not actively keep track specifically how long cases take from
beginning to end. They do track time within segments of their process.
The ROC staff noted that some very lengthy cases are due to the mutual agreement of the
contractor and the homeowner and are not the result of undue discord. The ROC staff gave
the example of the homeowner wanting a particular material used in a repair job. They said it
might take months to receive the order. This delay is not held against either party as long as
the material is selected and ordered promptly.
The Registrar staff conceded that the contested process takes a long time. They say it
frustrates them too, but they pointed out this is largely because due process requirements
impose duties on them. The Registrar's Office said they must allow the parties to contest
issues and give time for responses. They noted it also takes about three months to fit a case
into the Office of Administrative Hearings schedule, it takes about eight weeks to schedule
property inspections and then more time to perform their legal reviews. The Registrar staff
said their obsolete computer system causes numerous inefficiencies for both staff and the
public.
The Registrar of Contractors said they recently received permission to update their computer.
They provided us with a copy of their Project and Investment Justification (PIJ). Their
proposed new information management system is called Registrar of Contractor Information
Management System (ROCIMS). The PIJ for ROCIMS stated,
9
"Current agency procedures for issuing and renewing licenses, investigating
complaints, and providing financial reimbursement through the Recovery Fund
are labor-intensive and lengthy in duration."
The Registrar's staff places much of the blame for these problems on their current 30-year-old
information technology (IT) and communication systems. They say the system is overly
reliant on individualized Microsoft Word and Excel software instead of integrated computer
systems.
Findings for Issue 1
Finding lA
The Registrar's Office process takes too long.
The lengthy process frustrates homeowners, contractors and even the Registrar's staff. It is
not reasonable to expect a homeowner to wait over a year to fix his house, nor should an
innocent contractor have to spend over a year trying to clear his name. No matter which of
the two processes (administrative or judicial) is used, parties are looking ata complaint-to­pay-
off-timeframe that typically runs in excess of a year. Complaints having re-hearings,
appeals, settlements or extraordinary delays could stretch on an additional year or so longer.
Segments within the process clearly take too long. The final two segments (from conclusive
findings of guilt, to determination ofrecovery fund amounts, to the payoff date) exemplify the
problem. The administrative route runs approximately 249 days for these final segments,
while the court route typically runs about 123 days.
Finding IB
The current process, whether by court or via the administrative hearing route, typically
requires two hearings and this significantly delays the process.
The administrative route has one hearing to determine guilt and discipline (e.g., suspension or
revocation). It has another to determine the Recovery Fund amount.
The judicial route to the Recovery Fund requires homeowners to make two trips to Court. In
the first, they have their original case heard. Should they prevail in court, then the
homeowner must take their winning judgment to the Registrar's Office. The Registrar then
requires the homeowner to state a desired Recovery Fund amount. An amount might already
be listed in the original order, but no matter, the homeowner must go through the exercise.
The homeowner determines the amount and files a twenty-day (minimum) notice to say he
intends to go back to court and get the judge to "direct payment." The homeowner must wait
for a minimum oftwenty days and then they can go back to court and request the judge direct
the Registrar to pay the homeowner from the Recovery Fund.
This second round at Court or at administrative hearing seems to be a time-consuming,
unnecessary complication. It would seem more efficient and logical that the Recovery Fund
amount be determined as a component of the original court action or alternatively as an
original component of first administrative hearing and subsequent order.
10
Additionally, the Registrar's Office has no formal process to expedite payment out of the
Recovery Fund, even jf a Court has already established guilt. The current period of
approximately 123 days is excessive. Minnesota developed a quicker way to access their
recovery funds. It has a statutory process (see Minn. Stat. §326-975) to speed up their
recovery fund payment procedure. Minnesota homeowners must apply if they wish to be
considered for accelerated payment out of the contractor recovery fund.
Finding Ie
Another source of delay is the length of time it takes to schedule a property inspection.
ROC inspectors say labor constraints mean it takes about eight weeks before they can find the
time to visit a property. It then takes the inspectors approximately twenty or more days to
write and disseminate their report findings. Private sector appraisers tend to inspect and write
up mortgage appraisal inspections in two to five days.
Finding ID
The Registrar's Legal Section has too many cases to handle, given their staff allotment.
Last year, the section worked about 3,500 cases. The majority of these cases involved the
Recovery Fund, which meant the section frequently had to arrange two or more hearings for
each case and issue an equal amount oforders.
Finding IE
Another major source of delay is the Office of Administrative Hearings (OAH).
The Office of Administrative Hearings director, CliffVanell, reported that, "In FY 2006, 95%
of all ROC cases were scheduled for hearing by the 1lOth day from the date the Registrar of
Contractors requested that a hearing be set:' By a large margin, the ROC is the Hearing
Office's biggest customer. In order to achieve a reduction down to 90 days, the Office of
Administrative Hearings recommended the addition of a .5 Administrative Law Judge to hear
ROC cases, and the full implementation ofvideoconferencing.
Finding IF
The Registrar's computer system slows the process.
The ROC is aware the current computer system is deeply flawed and too slow. They know
this adversely affects the system participants. To address the problem, they created the
Registrar of Contractor Information Management System (ROCIMS) project. If delivered as
described in the December 2006 Project Investment Justification, this project will do much to
address timeliness issues of the Registrar's Office. Citizens can expect to see more self-serve
information; more complete and timely contractor status information (available prior to
entering agreements with contractors); faster receipt and tracking of consumer complaints;
enhanced tracking of investigative matters; improved adjudication processes and Recovery
Fund release of monies. Simultaneously, ROC staff will enjoy reduced data entry and the
reduction of other manual activities.
Finding IG
The Registrar's Office has no performance measure to track their complaint system's
duration from beginning to end.
11
When we asked staff how long the process took, they instead reported how long a complaint
took while in a particular area, not how long it had been in the overall process. They did not
track complaints from the date a homeowner files a complaint to the day the Recovery Fund
mails a check to the victorious homeowner. Thus, they do not have a performance measure
counting the number of total days it takes to completely handle a complaint. Such a measure
would be critical to assessing problem areas and reducing processing time.
We found that under the current process, the administrative system typically takes 545 days or
more and the court system route takes 178 days or more.
Finding IH
The ROC's Corrective Work Order and the Citation are largely redundant to one
another and having both notices lengthens the process.
Both notices inform contractors in writing that ROC inspectors have received a complaint.
Both notices say that failure of the contractor to correct items within a reasonable amount of
time (typically 15 days) may result in the ROC imposing penalties.
Recommendations for Issue 1
Recommendation IA
The Registrar's administrative processes for complaints need to be reduced. The current
process takes too long. Toward this end, the legislature should consider establishing a study
group comprised of complainant homeowners, plaintiff attorneys and consumer advocates
along with contractors, respondent attorneys and construction industry representatives to
examine the administrative system and suggest further refinements. The Registrar's Office
should participate in the evaluation too.
Recommendation 18
The legislature should consider amending statutes so construction cases contested
administratively via the Registrar of Contractors and the Office of Administrative Hearings
should have the recovery fund claim stipulated in the original case determination and order.
This would eliminate the current, time-consuming exercise requiring two proceedings. Under
such a scenario, complainants would request a specific Recovery Fund amount when they file
their complaint. Subsequently, ifROC inspectors verified the complaint, the inspectors would
issue corrective work orders stipulating not only what needs to be fixed/accomplished, but
also their evaluation of the claim amount. Contractors would still have their due process
rights because they could challenge the claim in the main hearing as to both responsibility and
amount.
Recommendation 1C
The Legislature should consider amending statutes so construction cases contested in court
have the recovery fund claim stipulated in the original case determination and order. This
would eliminate a time-consuming exercise requiring two court proceedings.
12
Recommendation ID
The Registrar's process for Recovery Fund complaints originating in the Courts need to be
reduced. The. current system takes too long. Toward this end, the legislature should consider
establishing a study group comprised of complainant homeowners, plaintiff attorneys and
consumer advocates along with contractors, respondent attorneys and construction industry
representatives to examine the ROC process for judicial complaints and suggest ways to speed
up the process. The Registrar's Office should participate in the evaluation too.
Recommendation IE
The Registrar's Office should develop a performance measure to track their complaint
system's duration from beginning to end. It should count from the date a homeowner files a
complaint to the day the Recovery Fund mails a check to the prevailing homeowner. They
should also establish goals and objectives designed to reduce the overall timeframe for
complaints.
Recommendation IF
The ROC should submit a request to the Legislature justifying an increase in full-time
employees (FTEs). They should ask for legislative approval of enough staff for their agency
so property inspections can occur within three weeks for regular cases and within two days
when there are habitation or extreme hazard issues.
Recommendation 1G
The Office of Administrative Hearings (OAH) should request more administrative law judge
positions from the Legislature to reduce the waiting times for hearing appointments relating to
ROC cases to six weeks or less.
Recommendation IH
The legislature should consider amending statutes to streamline the Inspection to Citation
process. The inspection notice could set an inspection date, inform the contractor about the
complaint (via a copy of the actual complaint) and suggest the contractor attempt to work out
the problems prior to the inspection. It could give the contractor notice that if the inspector
verifies workmanship or other problems at the future inspection, then an official citation will
be issued.
The current process usually has three written notices at its front end - a Notice of Inspection,
a Corrective Work Order and then a Citation. It would be more efficient if this three-step
notice process were reduced to two. From the moment the contractor receives a notice of an
inspection and copy of the complaint, they have warning where the homeowner believes the
contractor erred, violated statutes or failed to adhere to workmanship rules. Contractors
would have from the time ofthat notice until the inspection to "make it right." Subsequent to
the inspection, the ROC inspector will issue a citation if he verifies the problems exist and
finds the project does not conform to workmanship standards, rules or statutes. The
contractor would have 15 days to either fix the problem to the homeowner's satisfaction or
write to the Registrar and ask for a hearing to contest the findings in the citation.
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Recommendation 11
The Legislature should consider adopting a statute, similar to Minnesota's Statute §326-975,
to accelerate payment out ofthe contractor's recovery fund under certain circumstances.
Recommendation IJ
The Legislature should consider instructing the Joint Legislative Budget Committee (JLBC)
to closely track the progress of the ROCIMS computer project to ensure it stays on course and
has the necessary resources to be successfully completed.
Issue 2 - Recovery Fund Requirements - - Are the Fund's limits set too low
or are other Fund requirements too onerous?
The Recovery Fund has many restrictions, including monetary limitations. Unlike a bond, the
Recovery Fund is not subject to claims by suppliers, subcontractors, laborers or others. The
fund is limited to homeowners. Compensation for damages to anyone individual cannot
exceed $30,000, nor may the obligation per contractor climb past $200,000 [see Laws 2002,
Chap. 179 §§1 and 5]. We researched the history of these limit settings and found the
Legislature last adjusted the fund limits in 2002.
The Recovery Fund is available to claimants via two paths. Using the Registrar's
Administrative Process, a homeowner may submit a Recovery Fund claim once they have
obtained an order finding violations and suspending or revoking the contractor's license
[A.R.S. §32-1154].
Alternatively, it is also available to claimants in court systems under certain conditions. If a
homeowner obtains a judgment in court and cannot collect all the damages owed, the
homeowner can apply to the Recovery Fund [A.R.S. §32-1136] for partial payment. If a
homeowner goes the court route and wins, then he or she is required to bring the judgment
papers to the Registrar's Office. After the Registrar's Office receives the initial decision in
favor of the homeowner, the homeowner's attorney must then file a 20-day notice at the ROC
of the plaintiffs intent to apply to the court for an order directing payment from the Fund.
In both situations, the homeowner must also submit additional material to document their
expenditures and exact claim request. Currently, there is no way for a homeowner to get up­front,
pre-approval for a Recovery Fund amount. Owners must wait until nearly the end of
the lengthy process before the amount is set by an official order.
Getting the amount "set" is very involved and frequently takes numerous submissions before
ROC Recovery Fund staff agrees to a preliminary amount. Homeowners must document
extensively every item they wish compensated from the Recovery Fund. They must have
receipts for supplies and materials.
The Registrar of Contractors Office reviews the claim amount to see if it asks for items
outside or above the terms of the contract. The Registrar's Office works cases on a "first in;
first out basis" (FIFO) from the time the homeowner returns a completed recovery fund
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packet or otherwise submits Recovery Fund backup material. Unless the matter only involves
escrow money issues, the Registrar schedules an inspection to look over submitted items. The
inspector is required to finish his inspection, analysis and report regarding the appropriateness
of a homeowners Recovery Fund claim amount within 30 days. The Registrar's inspector
looks at the work and asks a number ofquestions:
• Was work performed to good workmanship standards?
• Were upgrades, which were not part ofthe original contract, improperly
included?
• If the homeowner completed work with another contractor, was it low bidder
or is the documentation sufficient to show reasonable expenses?
• What supplies were purchased?
• Did a licensed contractor perform the work?
Only actual damages are recoverable. Some items are disallowed. According to A.R.S. §32­1121,
homeowners cannot use a handyman or unlicensed contractor unless the total job stays
below one thousand dollars. Additionally, homeowners cannot recover their personal labor
costs from the Fund if they do the work themselves.
The Fund will not pay back homeowners who expend money on legal fees, expert witnesses
or other such costs. A homeowner must shoulder the burden of all legal costs, expert
witnesses, cost estimates and any pain and suffering. Legal fees from Court may be
recoverable via liens and court practices, but the inspector cannot count them when
determining Recovery Fund charges. The inspector cannot count late fees stipulated in the
contract either. Thus, even successful claims to the Recovery Fund rarely pay a homeowner
for their entire loss.
Homeowners are obliged to justify their replacement contractor costs. They cannot simply
hire a new contractor, but must demonstrate the contractor they hire is reasonable. The
Registrar's staff establishes this by telling homeowners to get three bids for the Registrar's
Office to review.
The Registrar's Office then issues a letter setting a proposed Recovery Fund figure. If the
homeowner and the Registrar's Office agree on the amount, then the Registrar's Office waits
to see if the contractor objects. Ifno one objects, the Registrar's Office certifies the amount.
If the contractor or homeowner contests the amount of the claim, or if the Registrar decides to
intervene, then all three groups (homeowner, contractor, ROC staff & attorneys) will go back
to court. If a Recovery Fund hearing is required, the group must again wait to get on the court
or hearing office calendar. This hearing will not involve questions about the merits, but will
instead center on settling the Recovery Fund amount. At the Recovery Fund hearing, a judge
hears the financial issues, determines the facts, then makes the payment decision and issues a
directive to payout. About three weeks later, the State Treasurer issues a check.
The Recovery Fund has further limitations. As said before, homeowners may only recover a
maximum of $30,000 per residence even though their losses might be greater than this limit.
15
Only actual damages are recoverable. Attorney fees, expert witness fees, upgrades not
stipulated in the contract, personal injury claims or consequential damages are examples of
items normally not recoverable via the Recovery Fund.
Once the Recovery Fund closes to a homeowner because their claim exceeds the individual
limit or total limit, the owner has little recourse. They can hire an attorney to go to court to
seek a judgment to recover their unpaid losses or write off the loss. If the contractor has no
assets to lien or insurance, the homeowner is simply out the money.
Registrar of Contractor staff checked the fund a year ago regarding the question, "Do any
complainants go away unpaid due to recovery fund limits?" In 2006, the Registrar staff
reported there were only two incidents where the fund maxed-out and only one occasion
where a homeowner was not paid. By 2007, the situation worsened. For example, in the case
of the particular contractor involved with our complainants, seven families won their case, yet
were totally cut off from the fund.
We are aware of at least two additional contractors who performed equally badly in 2007.
These contractors also financially injured consumers to a greater degree than the Fund's limit.
Latter consumers from each of these cases will be denied access. Clearly, the worse a
particular contractor is, the more likely the Recovery Fund will not be adequate to the task.
The ROC staff said the fund is financially in good shape. It operates on a cash basis and is
regularly audited. They said income exceeds expenses and the Fund has never been close to
running out of money. They said they have authority to raise the levy on contractors if the
fund runs low. The staff noted they actually cut the levy a number of years ago. Registrar of
Contractor staff members do not view the fund as an insurance policy. They believe it is a
"stopgap" if a contractor has no assets to lien.
We also asked about the rationale behind A.R.S. §32-1136, requiring those who file in court
to also file with the Registrar's Office in order to obtain access to the Recovery Fund.
Registrar staff said the provision is geared toward verifying the legitimacy of recovery fund
claims as dictated by statutes.
Alternatives
We spoke to the Department of Building, Fire and Life Safety because their agency also has a
Recovery Fund for owners of manufactured homes. We compared the two funds. The
Department of Building, Fire and Life Safety Recovery Fund does not have monetary limits
like the ROC fund. Recovery from the fund is only limited to actual or compensatory
damages, including costs, but excluding interest or attorney fees. While the Arizona
Department of Building, Fire & Life Safety's experience with their fund illustrates that a
recovery fund can work without artificially imposed limits, other states have not tried
completely uncapped systems for their contractor recovery funds.
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The Manufactured Housing Consumer Recovery Fund also does not have strict limits on
handymen doing remedial work either. Manufactured home property owners can use
unlicensed contractors as long as the particular task does not require a contractor's license.
We looked at 13 other Recovery Funds around the United States. Utah is one of three states
having a reciprocity agreement with Arizona. It has higher limits of $75,000 per residence
and $500,000 per contractor for its recovery fund. However, Utah's fund is for lienholders,
not homeowners. It only protects homeowners from sub-contractors who have not been paid
by general contractors.
Minnesota has set up a two-tier recovery fund system, either accelerated or standard. The
accelerated procedure is available to those with claims under $7,500.
Some states have found creative ways to manage multiple claims so that aggrieved
homeowners do not go away empty-handed because of recovery fund limitations. Examples
include North Carolina and Michigan. In North Carolina's case, once they become aware of
more than one claim, they consolidate all the claims by stipulating a deadline via an Order of
Consolidation. North Carolina has no limitation on their recovery fund, but they limit
distributions to the amount of the award or 10% of what is in the fund, whatever is less.
Homeowners not receiving their full allotment in one year can carry the remainder over to
subsequent years and continue to make annual claims until they are fully paid their complete
recovery fund award.
Numerous states require general liability insurance instead of, or in addition to, recovery
funds or surety bonds. Sometimes insurance or bonds are set according to the cost of the
original construction contract. Insurance must be put in place before work is commenced or
payments are made. In other cases, flat liability insurance amounts are required. Most
frequently, these liability policies depend on the type of license, contractor net worth or
average contractual values of the annual constructionagreements. The coverage typically
ranges from $100,000 to $500,000.
Complainants' View
Homeowners view the structure of the Fund as too limited. They think the recovery amounts
are set too low. They worry the overall $200,000 limit is too restrictive, given there is no
quick way to stop or suspend a bad contractor. Theoretically, only six homeowners could get
a full $30,000 and one homeowner a partial disbursement before the fund would max out.
Homeowners believe the worse a contractor is, the more likely the Recovery Fund will be
inadequate. They believe any offer to go to court for additional monies will be useless, given
that fraudulent contractors would hide assets or maintain limited liability companies or
corporations to limit their personal liabilities.
Homeowners do not believe most Arizonans are aware of these limits. They said the
Registrar's Office existence and mission statement lulled them into a false sense of security.
They believe the Registrar's Office was created to protect and regulate the public's health,
safety and welfare relating to construction. They thought this meant it would act as an
17
advocate to rectify verified construction wrongs committed by contractors. Yet, when the
homeowners availed themselves of the system, they found no advocacy.
Homeowners acknowledged that while due process is necessary, it need not be so piecemeal,
nor should it take over a year. The owners believe the system should better allow for
advocacy by the Registrar. They believe the Registrar's Office should more frequently
become a party to the case. The Courts or the Office of Administrative Hearings can ensure
parties get due process. They noted various Arizona commissions and boards become a party
to cases. The licensees in those circumstances must maintain pre-set standards or face
disciplinary proceedings.
The owners think. the Registrar's mission statement is misleading because it indicates the
ROC takes a more active roll than they do in practice. Owners believe the Registrar's Office
is too passive and they relegate too much responsibility to homeowners. They think. the
Registrar should more actively regulate construction licensees to make certain contractors
adhere to construction standards and laws. Because the Registrar's Office declines to become
a party in most cases, it means that whole segments of contracting law have no champions.
Homeowners do not think their claim should compete with others in a race to see who will get
a recovery amount before the fund limits stop further payouts. They think all wronged
consumers, having actual losses, should be entitled to a recovery fund payment. They think
this is only fair given that contractors are not paid via independent escrow account officers,
but directly by consumers.
In addition, homeowners complain the Fund requirements impose a cruel hardship when
coupled with the provision stating homeowners must only hire licensed contractors. Owners
complained that, in their experience, licensed contractors frequently refuse to bid on jobs
when they stem from a prior dispute with another contractor and when there has been a
complaint filed with the Registrar.
Homeowners further complain it seems unfair that contractors can use the very handymen and
unlicensed contractors that the homeowners are barred from using.
Homeowners say these limitations box them into spending more money when they already
face financial losses. They think their sweat equity should be allowed ifthe Registrar deems
the amount claimed as reasonable.
Homeowners think. the Registrar's Office has unrealistic expectations in regard to justifying
Recovery Fund Claims. They tell of extreme difficulties finding alternative contractors
willing to step into the midst of another contractor's faulty job. They view the restrictions on
handymen as ironic and punitive. They ask, "How is a bad licensed contractor or his
unskilled laborers, better than a good unlicensed handyman?
Homeowners believe that many jobs do not require licensed workers to do the job, but are
simply laborious tasks. Homeowners think they should be able to hire laborers for unskilled
jobs such as clean up, unloading, paint preparation and minor landscaping. They note that
18
contractors hire such laborers to do these tasks and more. Additionally, they ask, "How can
homeowner sweat equity be of no value if it gets the job done? They think that receipts and
alternative contractor estimates should only be one means of determining a fair Recovery
Fund amount.
Registrar of Contractors View
The Registrar's Office thinks the general structure, restrictions and Recovery Fund amounts
are about right. They claim few people are rejected if they have valid claims. They note
individuals may have damages exceeding the $30,000 individual limit, but they say the courts
can be petitioned for additional re-dress in these circumstances. They watch the Fund and
believe most people recover money once their Recovery Fund claim is approved. The
Registrar of Contractors supported an increase to the Fund limitation amounts in 2002.
The Registrar's Office said they would frequently close a case if the homeowner stops
pushing the case forward. The office said it is a "complaint-driven system." Therefore, if a
homeowner stops complaining, the ROC will commonly close the case. This is true even if
the ROC inspector has already confirmed the contractor failed in some manner.
The Registrar's Office acknowledges, "Current agency procedures for issuing and renewing
licenses, investigating complaints and providing financial reimbursement through the
Recovery Fund are labor-intensive and lengthy in duration." (Project and Investment
Justification, Registrar ofContractors Information Management System, Dec. 2006.)
The Registrar's Office does not want handymen or homeowners to be paid for labor to fix an
errant contractor's work. They believe it best to keep the current requirement that a licensed
contractor fix another contractor's work.
The Registrar's staff said they tend to be impartial and gear their system toward ensuring due
process to all parties in a case, but they infrequently become parties to a case themselves.
Findings for Issue 2
Finding2A
The Registrar of Contractors Recovery Fund's $30,000 individual and $200,000 total
monetary limits are too low.
The Fund limits were last increased in 2002. However, the value of residential real estate and
the cost of building in Arizona have dramatically risen in the past five years. In many cities,
single-family home prices more than doubled since 2002 [ArizonaReaIEstateNotebook.com].
Simultaneously, complaints against contractors have risen. Naturally, this means potential
losses for homeowners utilizing contractor services likewise escalated. Logically, potential
damage awards should rise to compensate for the increased potential losses.
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Finding2B
Low limits mean that some wronged consumers are likely to go away emp